Dina Readinger
CEO ACE Coaching Company
June 14, 2022
There are very few financial studies giving clarity to what really matters most when planning for the social piece of ESG. There is a positive correlation between ESG, ROE, ROA, and stock price, yet no one is planning for the social piece, the “S,” in ESG. Most all private companies are unaware of what is ESG, yet large corporations are keenly aware of the impact ESG has on investors. There is a direct correlation between ESG performance and operational efficiencies, stock performance, and lower cost of capital. The market is shifting with exponential growth in ESG awareness, and the big question is, how do we measure it? Impact investing rests on a business strategy focused on material ESG issues is synonymous with high-quality management teams and improved returns.
Recent data from Mercer, Boston Consulting Group, and McKinsey Group are focusing on what is unclear and a bit confusing. Environmental impacts are much easier to establish and quantify. Long-term sustainability is exceedingly difficult to measure since it is complex, dynamic, and relies on a different approach to creating social change.
What is the main ingredient to managing long-term sustainable growth over time?
When looking at the “S” in ESG there is many stakeholders to consider such as employees, civil society, suppliers, and investors. Contracts between corporations and society can determine consumer loyalty, demand, and government restriction. The most pressing issues are the failure of DEI programs to meet expectations from an outside investor’s view. NYU Stern Business revealed in an aggregate of all studies from 2015-2020 report out that ESG is a long game plan to produce sustainability and other studies need to be done to completely understand ESG. More research needs to be done around sustainability driven by innovation, employee relations, supplier loyalty, customer demand, risk mitigation, operational efficiencies, as well as DE&I. What is known? Companies who focus on ESG have significant positive impacts on their overall performance.
A most recent article from Harvard’s Law School Governance on Corporate Compliance are looking closely at the commitment of companies to follow through, with transparency, their commitment, accountability, ethical leadership, and the correlation between the return for investors. The companies with the greatest reporting compliance on key ESG issues are oil, gas, chemical, and energy. When the market changes around these key areas, the impact on society is noticed by everyone since it has a direct impact on people and how they live.
What can you do to boost ESG and what is measurable?
The Business Inquirer stated that the Black Swan events related to Covid 19 and Ukraine have put everyone in survival mode and ESG is now raking to the top as the biggest factor affecting company performance.
What can companies do?
· Engage in philanthropic endeavors such as activist groups, which can spur some pressure on states to promote environmental, social, and governance change.
· Ask employees, “What are the biggest needs families have today?” Can your employees produce ideas of how they want to create social change?
· Use transparency to find out from stakeholders how to create a synergic approach to what needs to change.
You can measure anything. Any process that is specific to the “S” in ESG can be measured for success such as, activity, beliefs, and the needs of your employees, stakeholders, and your customers. You can measure social change, and you must think freely. Investors are using ESG to decide who to invest in. If you plan to go public with your company, be ready when they ask about ESG.
Dina Readinger is CEO of Diagnostic Thinking and creator of a leadership system to develop executives, particularly in employee retention and diversity, equity, and inclusion. She can be reached at dina@acecoachingco.com.